Wherever you may be considering real estate transactions, the housing market is making a shift. Here’s a look at the latest real estate standings and what you can expect on the horizon!
The shift has begun, but rate hikes won’t’ be housing’s Achilles’ heel
Courtesy of Jim Dalrymple II ~ Inman News
The housing market is on the cusp of an “inflection point” right now.
That at least, is the takeaway from multiple recent reports as well as conversations Inman had with industry economists. And it’s an inflection point that will impact prices, supply, demand and the lives of agents and consumers alike. It’s a big deal.
But there are two parts to this shift. First, the freewheeling bonanza of the past two years that was fueled, in part, by cheap money is ebbing, and the scales may tip at least slightly more toward buyers.
But second, and significantly, a shift is not a collapse. Though rising mortgage rates are cooling the market, the high rates of the 1980s and 1990s aren’t on their way back, nor is a collapse imminent thanks to the more modest hikes that are taking place. Rates, in other words, are the big driver of this story, but in the end shouldn’t become an Achilles’ heel for real estate going forward.
The shift is happening
The evidence of a shift has been mounting for months, but suddenly feels like it’s everywhere now. Just days ago, for instance, Fannie Mae reported that both homebuilding and home sales are headed for a slowdown.
Jeff Tucker, a senior economist at Zillow, made a similar point, noting that depending on location, the slowdown may already have arrived.
“I think the big story here is the housing market is at or very close to an inflection point where it’s about to start cooling down nationally,” he told Inman. “Given local variation there are parts of the country that have already passed that inflection point.”
Tucker went on to say that Zillow’s analysis indicates the rate of price appreciation nationally should peak and begin to decline “any month now,” with a plateau arriving by next spring — though he stressed that the further out the projection, the less certainty there is.
At the same time, Redfin Chief Economist Daryl Fairweather told Inman that “home price drops are climbing in the national data.”
“We’re starting to see a bit of relief when it comes to new listings,” she said.
Tucker is also seeing this same rise in inventory, and he described the trend as “a really important piece of the puzzle.”
“That is a good leading indicator that buyers will have more options this summer,” he added.
Before the pandemic, buyers having more options in the summer would have sounded unremarkable. But the severe inventory shortage of the last two years and the resulting double-digit price growth make any upticks in supply and downticks in appreciation significant.
“These are signs that the market is shifting more into buyers’ territory,” Fairweather said, though she added that the market is a long way from the conventional idea of a “buyer’s market.”
The big driver of these shifts is rising mortgage rates. The economists who spoke to Inman noted that rising rates have made housing more expensive and knocked some buyers out of the game, meaning demand is leveling off somewhat.
A report this week from the Mortgage Bankers Association indicated that the average 30-year fixed-rate mortgage fell to 5.46 percent — a decline compared to recent weeks, but not enough of a drop to juice demand back up to where it was months ago. Joel Kan, a forecaster for the Mortgage Bankers Association, described the current rates in a statement as “well above what borrowers were used to over the past two years.”
Whether this is good or bad news depends on where you stand. Tucker noted, for example, that fast-rising prices over the last two years left some people on the sidelines. And many of them might welcome a slower, more buyer-oriented market.
“I think a lot of those folks, a lot of millennials, maybe a lot of people in Gen Z are hoping for a correction, hoping to see prices come back down,” Tucker said.
Rising rates aren’t the apocalypse
Despite the hopes of sidelined would-be homeowners, neither Tucker nor anyone else who spoke to Inman for this story envisions any major price drops in the near future. In other words, while the rate of price appreciation is widely expected to slow, that doesn’t mean it’ll go in reverse.
“We’re still expecting a year from now that prices will be higher than they are now,” Tucker said.
Jessica Lautz, president of demographics and behavioral insights at the National Association of Realtors (NAR), agreed and noted that a bubble is unlikely “because of the hot buyer demand that still exists.”
“There are a lot of buyers who have been waiting for less competition in the market place,” she told Inman.
Like other experts who spoke with Inman, Lautz pointed to rising interest rates as a factor in cooling the once-red hot housing market. But she also said the trend toward rising rates should slow.
“Our current forecast says this is about where rates will go,” she said. “We don’t see them rising substantially more.”
While current mortgage rates may be a shock to homebuyers just entering the market for the first time, they’re also low compared to historical norms. The early 1970s began with average rates in the low 7 percent range, according to the St. Louis Fed, and they steadily rose to more than 18 percent in the early 1980s. Rates didn’t fall to below 6 percent until the early 2002s.
Inman asked the experts who spoke out for this story if they envisioned rates returning to the highs of the 1980s and 1990s. They didn’t.
Fairweather instead said that the trend toward low rates is tied to a variety of economic conditions, for example the U.S. becoming a more desirable place for foreign investment. No one has a crystal ball, but Fairweather said the conditions that led to low rates still exist and she expects spikes to be temporary.
“Once these inflation woes are resolved,” she explained, “rates will start going in their long term trajectory, which is down.”
Fairweather also doesn’t see a bubble on the horizon, saying that the current shift is likely to be a more minor moment of cyclicality akin to 2018 rather than a monumental change like what happened in 2008.
“We don’t expect that there’s a national home price bubble,” she said.
As always, I’ll be watching the market, and keeping you informed.
Local Inventory Comparison
Courtesy of Barb Savoy – Director of Operations at The Cusick Group at HomeLogic
Last month’s trickle of inventory has nearly become a flood this month. Keep in mind, a balanced market is 5.5 months of supply, and our current inventory stands at 1 month, but over the past year we’ve had as little as 15 days of inventory, so 1 month feels pretty good!
The current inventory of single family detached properties in MLS (which includes Maricopa and Northern Pinal Counties) is 7,104, an increase of 2,536 listings from the previous month. Total inventory, including all property types is 8,617 which is an increase of 2,900 listings. I cannot recall the last time we have seen inventory increase so dramatically in a single month, and yet we still do not have as much total inventory as we did two years ago.
Valley wide closings for last month were 9,057 which includes all dwelling types and represents a decrease of 466 closings from the previous month.
Valley wide pending sales are 7,503 which is a decrease of 642 pending properties from the previous month. This does not include the 3,632 additional properties that are under contract with contingencies (properties that have escrow opened, but are not yet through the inspection and appraisal process). We keep an eye on these figures because they are of course a leading indicator for what we can expect to see in closed transactions for the coming month.
Central Phoenix – Active listing inventory is 776 homes, which is an increase of 252 listings from the previous month.
Northeast Valley – Active listing inventory is 1,179 homes, an increase of 460 listings from the previous month.
Southeast Valley – Active listing inventory is 1,534 homes, an increase of 402 listings from the previous month.
West Valley – Active listing inventory is 1,835 homes, an increase of 703 units from the previous month.
Scottsdale over $1,000,000 – Active listing inventory is 506 homes, an increase of 103 units from the previous month.
Paradise Valley – Active listing inventory has decreased slightly to 116 homes, an increase of 7 units from the previous month.
Thank you for taking time to read our update. We hope it provided useful information for you. If you would like to see a specific topic covered in a future edition, or for hyper local information specific to neighborhoods, please let us know at firstname.lastname@example.org. For additional information, I encourage you to contact me at BSavoy@CusickGroupRE.com! You can also find more tips, tricks, and insights available at cusickgroupre.com.